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Thursday, May 15, 2003

German Economy Shrank First Quarter

The FT tentatively points out that this might suggest a recession in Germany, my feeling is that it indicates the recession is pretty much guaranteed (but then I think it already was, months of ECB ineptitude, and a complete absence of creative policy alternatives have made this pretty much a dead cert). The only real question is how long and how deep?

The German economy, Europe's biggest, shrank in the first quarter, Hans Eichel (pictured), Germany's finance minister, said on Wednesday night, raising prospects of a recession at the heart of the eurozone. Speaking in Hanover ahead of Thursday's publication of official growth figures, Mr Eichel said that "contrary to Bundesbank and government expectations" the federal statistics office would show that "in the first quarter we did not have slight growth, but a small minus". His comments raise the prospect that Germany will slip into recession - as defined by two successive quarters of contraction - this year.They also undermine Mr Eichel's own previous growth forecasts, which had already been revised downwards. The government forecasts growth this year of 0.75 per cent. Private sector economists had been forecasting growth of at least 0.1 per cent for the first quarter. Thursday also sees the publication of semi-official annual tax revenue assessments - which it is feared will reveal another hole in government finances. The news will increase pressure on the European Central Bank to cut eurozone interest rates when it meets next month. Mr Eichel has recently delivered a series of gloomy pronouncements on the state of the Germany's economy and its public finances. In recent days he has said the government would this year exceed the 3 per cent budget deficit limit for eurozone members and be unable to balance the budget by 2006.
Source: Financial Times

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